The Financial Accounting Standards Board issued an
Topic 820, "Fair Value Measurement," says that when measuring the fair value of an asset or a liability, a reporting entity should consider the characteristics of the asset or liability, including restrictions on the sale of the asset or liability, if a market participant also would take those characteristics into account. Key to that determination is the unit of account for the asset or liability being measured at fair value.
Some constituents told FASB that Topic 820 has conflicting guidance on what the unit of account is when measuring the fair value of an equity security. That has led to different approaches on whether the effects of a contractual restriction that forbids the sale of an equity security should be considered in measuring that equity security’s fair value.
To deal with those uncertainties, the amendments in the standards update clarify that a contractual restriction on the sale of an equity security isn’t considered to be part of the unit of account of the equity security and thus is not considered in measuring fair value. The update introduces new disclosure requirements to provide investors with information about the restriction including the nature and remaining duration of the restriction.
For public business entities, the amendments take effect for fiscal years starting after Dec. 15, 2023, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years starting after Dec. 15, 2024, and interim periods within those fiscal years. Early adoption is allowed for both interim and annual financial statements that haven’t yet been issued or made available for issuance.
